The Week in Business: The Fed Hits the Brakes
What’s Up? (Sept. 18-24)
Central Banks Forge Ahead
At the Federal Reserve’s much-anticipated meeting on Wednesday, policymakers announced a rate increase of three-quarters of a percentage point, the third in a row of that size. They also reminded Americans that it would probably not be the last, predicting that borrowing costs would rise to 4.4 percent by the end of the year from the current range of 3 to 3.25 percent. “It would be nice if there was a way to just wish it away, but there isn’t,” Jerome H. Powell, the Fed chair, said of the high inflation he is trying to tame with rate increases. Other central banks have been taking similar actions. On Thursday, the Bank of England raised its key rate half a percentage point, lifting it to the highest level since late 2008.While inflation in the United States has begun to show some signs of moderation, policymakers in Britain are still awaiting its peak.
Gloom on Wall Street
Investors could not say they were surprised by the Fed’s actions on interest rates; they had been prepared for the three-quarter increase. Instead, it was Mr. Powell’s words of warning after the decision was announced that appeared to spook them most. On Wednesday, the S&P 500 closed down 1.7 percent and continued to fall through Friday. Investors typically parse Fed officials’ remarks for clues about the central bank’s path, but recently the message has been clear enough. As Mr. Powell continues to emphasize that the Fed’s campaign to bring down inflation and slow the economy is not going to let up anytime soon — and may even become more aggressive — the pessimism on Wall Street has deepened much of the month. The market downturn is worrying to investors, but the Fed could consider it a sign that its efforts are working: Falling stocks mean that companies will have more trouble raising funds, and that could help cool down the economy.
Bank Executives on the Hill
The heads of seven of the country’s largest banks appeared before the House Financial Services and Senate Banking, Housing and Urban Affairs committees last week as part of Congress’s annual oversight hearings into U.S. banking institutions. This year’s meeting came at a particularly tense moment, as concerns intensify about the direction of the economy and how banks will fare in the event of a recession. Speaking to the committee, Jamie Dimon, the chief executive of JPMorgan Chase, said lawmakers “should be prepared for the worst.” The bank executives also faced questions about consumer protections, diversity and their involvement in political discussions around issues like abortion access. Many Republican lawmakers urged banks not to weigh in on social issues, with Senator Pat Toomey of Pennsylvania arguing that when they have, “they seem to always come down on the liberal side.”
What’s Next? (Sept. 25-Oct. 1)
A Question of Competition
American Airlines and JetBlue go to court this week in an antitrust suit filed by the Justice Department that accuses the two airlines of establishing a “de facto merger” in the New York and Boston markets. In the suit, federal regulators said the two carriers had sought to align themselves in four major airports — Kennedy International, La Guardia, Newark Liberty and Logan International — “on all aspects” of network planning, including routes, schedules and aircraft. The suit said the companies had also arranged to share revenues earned at those airports, in turn raising prices for customers and reducing competition. The airlines argue that their close ties actually increase competition against Delta Air Lines and United Airlines, the two other major carriers, and in New York airports. Whether they are able to win these arguments could be of particular consequence to JetBlue, which is trying to complete a merger with Spirit Airways amid considerable scrutiny.
Porsche Goes Public
Investors can begin buying and trading shares of Porsche on the Frankfurt Stock Exchange on Thursday, as Volkswagen takes the luxury sports car brand public. Volkswagen, Porsche’s parent, is targeting a valuation of as much as $75 billion, which would make it one of the biggest stock market debuts of the year and value it above rivals like BMW and Mercedes-Benz. The blockbuster initial public offering is possible in part because Volkswagen has already secured weighty investors for it, including the sovereign wealth funds of Qatar, Norway and Abu Dhabi. A portion of the proceeds will go to Volkswagen’s shift to electric vehicles, according to executives, as well as the production of new vehicle batteries.
More Recession Indicators
A raft of economic reports will be released this week, providing fresh data on new home sales, durable goods orders and consumer confidence — and potentially offering new insight into whether the United States is in a recession or about to enter one. With the Fed raising borrowing costs, mortgage rates have climbed and the housing market has slowed, often a harbinger of a serious economic slowdown.And if Americans aren’t feeling good about the economy and are holding back on purchases of durable goods like cars and furniture, that can affect the direction the economy takes.
TikTok is barring politicians and political parties from fund-raising on its platform ahead of the midterm elections. Boeing reached a $200 million settlement with federal regulators, who accused the company of misleading investors about the cause of two crashes involving its 737 Max planes. Some of Asia’s holdouts on Covid restrictions, including Hong Kong and Taiwan, are loosening their protocols in attempts to revive their economies and catch up with other countries easing pandemic measures.